How To Shop For A Mortgage And WIN

Certified Mortgage Advisor
NMLS 1701021
Published 
November 12, 2020

Shop and win!

Today we're talking about how to shop for a mortgage and win. So this step if you do it correctly, can save you literally tens of thousands of dollars over a period of the term of your loan when you're shopping for a mortgage.

Timing, knowledge and a great tool

So what you're going to learn here is how to find the cheapest loan option, which is not always easy. But also win to shop, you'll also learn a comparison tool that literally, I hear nobody talk about, but it's free and it's given to every single buyer, but most of them don't even know how to interpret it. Then number four, the three types of lenders that you can shop with. All right. So we're going to make this easy, breaking this down step-by-step.

Timing

So the first thing that you need to know is you have a 45 day window to get your credit checked as many times as you'd like, and it only counts as one inquiry. So you have an entire 45 days and everything counts as one inquiry.

Shop with different lenders with same type of mortgage

So this means you can shop with as many lenders as you would like as long as it's the same types of mortgage inquiry, you're fine. You can't do a mortgage and a car and a credit card. Those are three different, but if it's multiple mortgage inquiries, it only counts as one. Also, one inquiry is only going to affect your score by anywhere from zero to five points. It's not going to have this huge impact. So what I would suggest is you start shopping about two weeks before you're ready to go shop for a home.

The reason why is you want to have some time to digest these numbers. You want to have some time to be able to think them over. If you get approved and immediately go into home shopping, you can move just based off of emotion and maybe not based entirely off of the information that you have. Sometimes it's good to get the information, get prepared and then take a step back.

#CalmMoment

So that leads us into our CalmMoment. See, when you're starting to shop for mortgages, you're about to start a cycle of getting into the real estate world and things move quickly, and it can be very overwhelming. Also, you're going to be talking to salespeople who want you to move a lot faster than you probably should.

Stop and don't rush

So at this stage, it's really good for you to take a moment and slow down. What that might look like is maybe you go on a walk with your family. Maybe you take some time to relax. Maybe you go have a drink, you know, do whatever you need to do to take a moment to slow down and relax and think things through. You don't have to rush into everything.

Do your research

At this stage, it can also be really overwhelming, and a little terrifying to talk with somebody about your finances and the small potential that you could not be approved for a loan. I know that's a really intimidating and again, the best thing to do is gather the information, do what you're doing. Watch videos about mortgage, get all the information, then create a calm plan that's gonna take you where you want to go.

How you actually shop

What you want to do is when you're applying with different lenders, you want to apply within the same timeline. Ideally, you want to do this within a day. The reason why is because the market is always shifting. It has these moments where it's going up and it's going down, and it's always moving. So if you apply with Lender A today, and then you apply with Lender B two days from now, the market could have shifted entirely. Sometimes rates change that quickly.

Apply within the same day

So if you're applying with lenders, you ideally want to apply all within the same day. If you can do it within a shorter timeframe, like a few hours, and that's even better because you're going to see how all those lenders price out in that exact same market situation.

Have a fair comparison

You don't want to have a day where you're seeing a quote from Lender A and then big economic news happens and the stock market changes and then you shop with Lender B. That's not a fair, apples-to-apples comparison.

Similar features

Also, you want to keep in mind that you're looking at similar features. So if you're comparing an FHA loan with one lender. You want to look at other lenders, FHA loans. You don't want to compare conventional to FHA and assume that FHA has a lower rate so this lender is better.

Same thing with discount points. If you go to a lender and say, I want to see your lowest rate, or what's your lowest rate? Well, Lender A might quote you a rate with discount points, meaning you're prepaying the interest. So you're buying the interest rate down, but you're paying a fee upfront.

Now Lender B might not do that for you. They might show you without any points and you don't automatically say Lender A is better because even though they have a lower rate, they have a higher fee. So make sure that you're comparing these side by side. So it would be good to go to a lender and say, I'd like to see what's the best product for me.

I'd also like to see one with maybe one point, do the same thing with the other lender. I want to see a loan with the best product, with no points, and one product with a point. So make sure you compare those side by side.

Section A fees

This one is huge. You only want to compare Section A fees.

What's a Section A fee?

A Section A fee is what the lender charges. So, if you get a Loan Estimate on page two, there's in the top left Section A, and this is what the lender charges, everything else B through J is a third-party fee. This means that the lender isn't charging them, they're only estimating those fees.

So sometimes what I've seen happen is buyers make wrong decisions based on a lender's estimate. This is how this works. Let's say Lender A quotes you, and they charge $1,000 in their lender fees. So maybe it's an origination fee or an underwriting fee or processing fee, whatever they want to call it.

It's the fee that is required to work with that lender. So they charge you a thousand dollars. For insurance, maybe they're quoting you $2,000 per year. And then you talk with this other lender, they're also charging a thousand dollars to work with them. but they only quote a thousand dollars for insurance a year.

Lenders are not insurance brokers

Well they're lenders. They don't provide insurance. They're only estimating that for you. Kind of as a good faith effort to show you what the total cost might be. So it doesn't make sense to choose a Lender B just because they quoted insurance differently. So when you compare lenders, don't worry about the third-party fees.

They'll help you give a rough idea of what you might be paying in total, but the lender cannot determine these third-party fees. They can only determine what are called Section A fees. And you can ask your lender, Hey, what are your Section A fees? These will be things like discount points, underwriting fees, processing fees, sometimes there are other ones like a doc prep fee, there's, an admin fee. It depends the lender might call it different things.

How to compare

So there's gonna be three different ways that you can actually compare these numerically because the hard thing is you're seeing these numbers in front of you. But how do we actually tell which is the best one, because this one gives us a 3% rate with a thousand dollars in cost.

This one gives me a 2.875% rate with $2,000 in cost. Well, which one is better actually. So three different ways.

Total Cost

Number one is you can look at the total cost. So, you could do a calculator online, put in those fees and it would show you the total interest and the number of fees that you'd pay total over the life of the loan. That's, it's a bit of a crude way. It's not the best way. But it is an option that you have.

Total Cost Analysis

Another way is a lender could show you something called a total cost analysis. So, working as a broker, that's what I would do for clients. I'd send them a total cost analysis. It would break down all of the loan options and show them the net cost of each loan through different years.

So not all lenders have that, but it's helpful if you're working with a lender who does that.

APR

Something else is you want to look at the APR or Annual Proportion Ratio. So the APR is all of the costs of the loan expressed as a rate. It's not your interest rate. It's your interest plus all of the fees. And then that's expressed as an annual percentage rate.

So again, this can help you figure out a lower APR loan over the period of that loan is going to be cheaper than one with a higher APR. It's not just the interest rate, it's the interest rate, plus any fees or discount points that are being included in that.

Comparing loan estimate side by side

Then this one is huge. This is the one that I don't hear anybody talk about. I've watched several videos, in researching this topic and seeing what other people are talking about. No one has mentioned this. The government has made it easy for you to compare Loan Estimates side by side. Just a quick aside, a Loan Estimate is a document that a lender is legally required to give you when they have a full loan application from you.

Loan Estimate on page 3

So, this is what it looks like on page three on page three of your Loan Estimate, there's this box that says "Comparisons", and this is super helpful because it's going to show you number one in five years what's the total you've paid in principal, interest, mortgage insurance, and loan costs. Also, the principal that you've paid off.

Why 5 Years range?

So five years is a really great, range to see because you might be looking at moving in five years or refinancing in five years. Most people don't hold onto a loan for 30 years, even if they're in the property for 30 years. So it's good to see these smaller increments.

What will loan estimate will show

It's also gonna show you your annual percentage rate. Again, this is your cost over the loan term, expressed as a rate. Then it also shows you the total interest percentage. So the total amount of interest that you'll pay over the loan term is a percentage of your loan amount. This is on every single loan and it's given to every single person who starts a loan application.

Ask for a Loan Estimate from your lenders

So ask for a Loan Estimate from these lenders. That way you can take a look at page three and see in five years, which is going to be the better loan option for you. So who do you shop with? In my recommendation, I think shopping with three lenders is a really great place to be all right.

If possible, shop with different lenders

Shopping with more than three starts to get a little hectic. I don't think you're gonna have some diminishing returns at that point. What I would suggest is shopping with three lenders, three different types of lenders.

Local credit union

So number one would be a local credit union. So only you can find that around your area.

Local mortgage broker

Number two would be a local mortgage broker. So a broker shops with different lenders, for you.

Bank or direct lender

So think something like Quicken Loans or Chase. Those would be big banks or big direct lenders.

Getting three quotes will give you more leverage

Getting three quotes from these three different types of lenders is going to give you a really good spread and help you understand exactly what's out there for you that might work well in your situation. So that leads us into a pretty good segue into our sponsor.

Credible

Our sponsor is Credible and they are a mortgage comparison website where you can fill out a prequalification form. It takes only a few minutes. They do a soft credit pull, and then they're actually going to show you pre-qualified rates from different lenders.

So they function as a broker. So this could be an option as a mortgage broker for you. Here is the link: Credible if you want to fill it out, but it's simple and it's easy. You're going to see those rates immediately after you fill out that form.

Do a full application and qualify

So with all of these lenders, you want to do a full application. Because if you don't do a full application then a lender, doesn't have all the information that they need to qualify you for a loan. The last thing that you want is to give partial information, get a quote that doesn't actually apply to you, and then try to close a loan and find out you're going to have a different interest rate than you anticipated.

Full application for an accurate quote

So you want to do a full application with all of these lenders and that's going to help them make sure they give you the most accurate quote possible because small things in your application can change the way that you get an interest rate and the pricing for your loan. Then also find someone who can help you with the planning process and not just the rate.

Look for someone who is with you in your goal

You don't want just a salesman. Who's going to say, I can give you the lowest rate. You want somebody who's going to understand your goals a little bit, ask you questions, you don't want to be asking them all the questions you want them to ask you questions about what you're looking to do financially, what your goals are financial, how long you plan on staying in the property.

Look for a helpful professional

You want a lender who's going to help show you different loan options. If you're just working with somebody who says, here's the rate. Then they expect you to go along with that, then I'd have some concerns that were raised. I would want to work with a professional who's helping me actually plan and taking into consideration the goals that I have, both with where I'm living and the goals that I have financially because you're taking hundreds of thousands of dollars worth of debt. That money has to be moved in a direction correctly, or else it's going to be more costly down the road.

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Only for educational usage. All calculations should be verified independently. Win The House You Love LLC is not a lender, does not issue loan qualifications, and does not extend credit of any kind. This is not an offer to lend and should not be used to make decisions on home offers, purchasing decisions, nor loan selections. Not guaranteed to provide accurate results, imply lending terms, qualification amounts, nor real estate advice. Seek counsel from a licensed real estate agent, loan originator, financial planner, accountant, and/or attorney for real estate and/or financial advice. Read the full disclaimer here.